-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JCDbSiQn2HkHZ9VWiNHbRiI60NEaQs4VQDoCA+mpcFJYj9l1p1ldZZkOpf518l4c y8tmUH107qlNULG/2kVIZg== 0000819577-04-000007.txt : 20040330 0000819577-04-000007.hdr.sgml : 20040330 20040330095346 ACCESSION NUMBER: 0000819577-04-000007 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP CENTRAL INDEX KEY: 0000931755 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411789725 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-85076 FILM NUMBER: 04698303 BUSINESS ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6122277333 MAIL ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH STREET CITY: ST PAUL STATE: MN ZIP: 55101 10KSB 1 k21-03.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended: December 31, 2003 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Name of Small Business Issuer in its Charter) State of Minnesota 41-1789725 (State or other Jurisdiction of (I.R.S. Employer) Incorporation or Organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (651) 227-7333 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Check if disclosure of delinquent filers in response to Rule 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or and amendment to this Form 10-KSB. The Issuer's revenues for year ended December 31, 2003 were $1,068,185. As of February 29, 2004, there were 22,907.489 Units of limited partnership interest in the registrant outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $22,907,489. DOCUMENTS INCORPORATED BY REFERENCE The registrant has not incorporated any documents by reference into this report. Transitional Small Business Disclosure Format: Yes No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. AEI Income & Growth Fund XXI Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on August 31, 1994. The registrant is comprised of AEI Fund Management XXI, Inc. (AFM) as Managing General Partner, Robert P. Johnson, the President and sole director of AFM, as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased ten properties including partial interests in seven properties, at a total cost of $19,686,525. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are commercial, single tenant buildings leased under triple net leases. The Partnership's properties were purchased with subscription proceeds without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance day-to-day cash flow requirements (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the properties is limited in the aggregate to 10% of the purchase price of all properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions. The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. In addition, certain lessees may be granted options to purchase properties after a specified portion of the lease term has elapsed. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale. It is anticipated that the Partnership will commence liquidation through the sale of its remaining properties twelve to fifteen years after its formation, although final liquidation may be delayed by a number of circumstances, including market conditions and seller financing of properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Leases Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. The initial lease terms are for 15 to 20 years. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The leases provide the lessees with two to five five-year renewal options subject to the same terms and conditions as the initial lease. Certain lessees may be granted options to purchase the property at a formula price, which would exceed the original cost. The actual sale price of a property to a lessee may or may not exceed original cost depending on market and other conditions. Property Activity On March 30, 2001, the Partnership purchased a Children's World daycare center in Mundelein, Illinois for $1,618,824. The property is leased to Knowledge Learning Enterprises, Inc. under a Lease Agreement with a primary term of 15 years and annual rental payments of $153,710. During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. On March 8, 2001, the Partnership purchased a 25% interest in a parcel of land in Austin, Texas for $283,000. The land is leased to Kona Restaurant Group, Inc. (KRG) under a Lease Agreement with a primary term of 17 years and annual rental payments of $29,715. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to KRG for the construction of a Johnny Carino's restaurant on the site. The Partnership charged interest on the advances at a rate of 10.5%. On September 26, 2001, after the development was completed, the Lease Agreement was amended to require annual rental payments of $60,191. The Partnership's share of the total acquisition costs, including the cost of the land, was $571,902. The remaining interests in the property are owned by AEI Real Estate Fund 85-A Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, and AEI Income & Growth Fund 23 LLC, affiliates of the Partnership. During the third quarter of 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Through December 31, 2001, the Partnership sold its interest in the Champps Americana restaurant in Columbus, Ohio, in eleven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,295,174, which resulted in a net gain of $631,607. The total cost and related accumulated depreciation of the interests sold was $1,808,880 and $145,313, respectively. For the year ended December 31, 2001, the net gain was $289,679. In May, 2001, Huntington Restaurants Group, Inc. (HRG), the lessee of the Denny's Restaurant in Covington, Louisiana notified the Partnership that it was experiencing financial problems and would not make the lease payments while they worked out a plan which would enable them to continue operations without seeking bankruptcy protection. In October, 2001, the Partnership received an offer to buy the restaurant for $900,000 from an unrelated third party. Effective December 10, 2001, the Partnership terminated the Lease to accommodate the sale. Through this date, HRG owed $80,316 of rent, which will not be collected and was not accrued for financial reporting purposes. In the third quarter of 2001, a charge to operations for real estate impairment of $295,354 was recognized, which was the difference between the book value at September 30, 2001 of $1,145,354 and the estimated net sales proceeds of $850,000. The charge was recorded against the cost of the building and equipment. At December 31, 2001, the land and building were classified as Real Estate Held for Sale. On February 19, 2002, the sale closed with the Partnership receiving net sale proceeds of $816,143 which resulted in a net loss of $29,982. Through December 31, 2002, the Partnership sold its interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the years ended December 31, 2002 and 2001, the net gain was $16,738 and $727,695, respectively. Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the years ended December 31, 2002 and 2001, the net gain was $1,464,843 and $423,383, respectively. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to Knowledge Learning Enterprises, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. Through December 31, 2002, the Partnership had advanced $44,281 for construction of the property. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Income & Growth Fund 24 LLC, affiliates of the Partnership. On December 23, 2003, the Partnership sold .5213% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $26,607, which resulted in a net gain of $2,639. The cost and related accumulated depreciation of the interest sold was $24,162 and $194, respectively. Subsequent to December 31, 2003, the Partnership sold 16.0762% of the Winn-Dixie store, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $872,000, which resulted in a net gain of approximately $135,000. During the third quarter of 2003, the Partnership sold its 25.0% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store, in eleven separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. Subsequent to December 31, 2003, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of approximately $392,000, which resulted in a net gain of approximately $128,000. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,594,783. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. Subsequent to December 31, 2003, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for approximately $1,963,800. The property is leased to Sterling Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. The remaining interest in this property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. Subsequent to December 31, 2003, the Partnership entered into an agreement to purchase a 50% interest in an Eckerd drug store in Buffalo, New York for approximately $1,606,500. The property will be leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of approximately $133,000. AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership, entered into an agreement to purchase the remaining interest in the property. Major Tenants During 2003, four tenants each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 88% of total rental revenue in 2003. It is anticipated that, based on minimum rental payments required under the leases, each major tenant will continue to contribute more than ten percent of rental revenue in 2004 and future years. However, the tenant of the Garden Ridge retail store will not continue to be a major tenant since the property was sold, in a series of transactions, between November 2003 and January 2004. Any failure of these major tenants could materially affect the Partnership's net income and cash distributions. Competition The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties. Employees The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM. ITEM 2. DESCRIPTION OF PROPERTIES. Investment Objectives The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash sale-leaseback transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the type and location of the Partnership's properties. Description of Properties The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under triple net leases, which are classified as operating leases. The Partnership holds an undivided fee simple interest in the properties. The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference. The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 2003. Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. Arby's Restaurant Montgomery, AL RTM Gulf (2.6811%) 5/31/95 $ 23,049 Coast, Inc. $ 2,679 $33.70 Garden Ridge Retail Store Pineville, NC Garden (3.7372%) 3/28/96 $ 334,228 Ridge, L.P. $ 38,881 $ 7.37 Champps Champps Americana Restaurant Entertainment San Antonio, TX 12/23/97 $ 2,833,357 of Texas, Inc. $336,847 $38.81 ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. Champps Americana Restaurant Champps Livonia, MI Operating (.1534%) 5/19/98 $ 6,366 Corporation $ 706 $50.28 Tumbleweed Restaurant Tumbleweed, Fort Wayne, IN 9/11/00 $1,334,315 Inc. $140,739 $23.73 Johnny Carino's Restaurant Austin, TX Kona Restaurant (1.1839%) 9/26/01 $ 27,083 Group, Inc. $ 2,993 $39.13 Children's World Knowledge Daycare Center Learning Andover, MN 6/14/02 $1,264,207 Enterprises, Inc. $120,204 $13.94 Children's World Knowledge Daycare Center Learning Ballwin, MO 6/14/02 $1,517,778 Enterprises, Inc. $144,113 $17.28 Children's World Knowledge Daycare Center Learning Kimberly, WI 6/14/02 $1,358,239 Enterprises, Inc. $129,087 $12.49 Johnny Carino's Restaurant SFG Farmington-I Farmington, NM 5/28/03 $2,183,344 Limited Partnership $231,000 $37.63 Winn-Dixie Retail Store Panama City, FL Winn-Dixie (36.4787%) 9/19/03 $1,690,803 Montgomery, Inc. $136,430 $ 7.71 Johnny Carino's Restaurant Kona Restaurant Laredo, TX 12/30/03 $2,594,783 Group, Inc. $215,646 $30.95 The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or unrelated third parties. The remaining interests in the Winn- Dixie store are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties. The remaining interests in the Arby's restaurant, the Garden Ridge retail store, the Champps Americana restaurant in Livonia, Michigan and the Johnny Carino's restaurant in Austin, Texas are owned by unrelated third parties. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in- common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. The initial Lease terms are 20 years, except for the Children's World daycare centers and the Tumbleweed restaurant, which have Lease terms of 15 years and the Johnny Carino's restaurant in Laredo, Texas which has a Lease term of 13 years. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Tumbleweed restaurants, 14 years for the Johnny Carino's restaurant in Farmington, New Mexico, 15 years for the Children's World daycare centers, the Champps Americana restaurants and the Johnny Carino's restaurants in Austin and Laredo, Texas and 25 years for the Garden Ridge and Winn-Dixie retail stores. Pursuant to the Lease Agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations. For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 39 or 40 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes. Through December 31, 2003, all properties listed above were 100% occupied. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. As of December 31, 2003, there were 1,284 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. However, the Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2003, eight Limited Partners redeemed a total of 117.84 Partnership Units for $81,076 in accordance with the Partnership Agreement. During 2002, eight Limited Partners redeemed a total of 210.02 Partnership Units for $156,938. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 33 Limited Partners redeemed 764.65 Partnership Units for $647,929. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $819 and $1,586 in 2003 and 2002, respectively. Cash distributions of $21,818 and $18,788 were made to the General Partners and $2,160,011 and $1,859,991 were made to the Limited Partners in 2003 and 2002, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations. As part of the Limited Partner distributions discussed above, the Partnership distributed $808,453 and $662,865 of proceeds from property sales in 2003 and 2002, respectively. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. The Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the affects of these consequences for the Partners; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. The Application of Critical Accounting Policies The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage. The Partnership purchases properties and records them in the financial statements at the lower of cost or estimated realizable value. The Partnership initially records the properties at cost (including capitalized acquisition expenses). The Partnership is required to periodically evaluate the carrying value of properties to determine whether their realizable value has declined. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. A change in these assumptions or analysis could cause material changes in the carrying value of the properties. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) AEI Fund Management Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement. Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership. Results of Operations For the years ended December 31, 2003 and 2002, the Partnership recognized rental income from continuing operations of $1,068,185 and $901,142, respectively. In 2003, rental income increased as a result of additional rent received from six property acquisitions in 2002 and 2003, and rent increases on two properties. These increases in rental income were partially offset by a decrease in rent due to sales of the Champps Americana restaurant in Livonia, Michigan and the Johnny Carino's restaurant in Austin, Texas. For the years ended December 31, 2003 and 2002, the Partnership incurred Partnership administration expenses to affiliated parties of $212,942 and $238,259, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and correspondence to the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $19,501 and $43,392, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. For the years ended December 31, 2003 and 2002, the Partnership recognized interest income of $82,159 and $68,905, respectively. In 2003, interest income increased due to the Partnership receiving interest from construction advances. For the years ended December 31, 2003 and 2002, the Partnership recognized gain on sale of real estate from continuing operations of $2,639 and $1,533,515, respectively, from the sale of two properties. Since the Partnership retains an ownership interest in these properties, the operating results and gain on sale of the properties were not classified as discontinued operations. Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the year ended December 31, 2002, the net gain was $1,464,843. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During the third quarter of 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. On December 23, 2003, the Partnership sold .5213% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $26,607, which resulted in a net gain of $2,639. The cost and related accumulated depreciation of the interest sold was $24,162 and $194, respectively. Subsequent to December 31, 2003, the Partnership sold 16.0762% of the Winn-Dixie store, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $872,000, which resulted in a net gain of approximately $135,000. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. For the year ended December 31, 2003, the Partnership recognized income from discontinued operations of $2,742,350, representing rental income less property management expenses and depreciation of $401,035 and gain on disposal of real estate of $2,341,315. For the year ended December 31, 2002, the Partnership recognized income from discontinued operations of $498,693, representing rental income less property management expenses and depreciation of $511,937 and loss on disposal of real estate of $13,244. In May 2001, Huntington Restaurants Group, Inc. (HRG), the lessee of the Denny's Restaurant in Covington, Louisiana notified the Partnership that it was experiencing financial problems and would not make the lease payments while they worked out a plan which would enable them to continue operations without seeking bankruptcy protection. In October, 2001, the Partnership received an offer to buy the restaurant for $900,000 from an unrelated third party. Effective December 10, 2001, the Partnership terminated the Lease to accommodate the sale. Through this date, HRG owed $80,316 of rent, which will not be collected and was not accrued for financial reporting purposes. In the third quarter of 2001, a charge to operations for real estate impairment of $295,354 was recognized, which was the difference between the book value at September 30, 2001 of $1,145,354 and the estimated net sales proceeds of $850,000. The charge was recorded against the cost of the building and equipment. At December 31, 2001, the land and building were classified as Real Estate Held for Sale. On February 19, 2002, the sale closed with the Partnership receiving net sale proceeds of $816,143 which resulted in a net loss of $29,982. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Through December 31, 2002, the Partnership sold its 49.6% interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the year ended December 31, 2002, the net gain was $16,738. During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. During the third quarter of 2003, the Partnership sold its 25.0% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store, in eleven separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. Subsequent to December 31, 2003, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of approximately $392,000, which resulted in a net gain of approximately $128,000. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. In 2003 and 2002, the Partnership realized significant gains from the sale of property. While the real estate market is expected to remain attractive for sellers of property, there can be no assurance the Partnership will be able to achieve a similar level of sales activity or sales profitability in 2004 due to unforeseen changes in the real estate market. In addition, it is likely the Partnership will curtail its selling activity as it is becoming more difficult to find attractive property in which to reinvest the proceeds from property sales. Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Partnership to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Liquidity and Capital Resources During the year ended December 31, 2003, the Partnership's cash balances increased $1,364,723 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. During the year ended December 31, 2002, the Partnership's cash balances increased $192,789 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities increased from $1,353,339 in 2002 to $1,593,518 in 2003 as a result of an increase in total rental and interest income, a decrease in Partnership administration expenses in 2003 and net timing differences in the collection of payments from the lessees and the payment of expenses. The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the years ended December 31, 2003 and 2002, the Partnership generated cash flow from the sale of real estate of $7,390,501 and $5,609,087, respectively. During the years ended December 31, 2003 and 2002, the Partnership expended $5,658,584 and $4,974,732, respectively, to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to Knowledge Learning Enterprises, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. Through December 31, 2002, the Partnership had advanced $44,281 for construction of the property. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Income & Growth Fund 24 LLC, affiliates of the Partnership. On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,594,783. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. Subsequent to December 31, 2003, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for approximately $1,963,800. The property is leased to Sterling Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. The remaining interest in this property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. Subsequent to December 31, 2003, the Partnership entered into an agreement to purchase a 50% interest in an Eckerd drug store in Buffalo, New York for approximately $1,606,500. The property will be leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of approximately $133,000. AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership, entered into an agreement to purchase the remaining interest in the property. The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first ten days after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. For the years ended December 31, 2003 and 2002, the Partnership declared distributions of $2,181,829 and $1,878,779, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $2,160,011 and $1,859,991 and the General Partners received distributions of $21,818 and $18,788 for the periods, respectively. In December 2002, the Partnership declared a bonus distribution of $242,424 of net sale proceeds. In December 2003, the Partnership declared a bonus distribution of $545,455 of net sale proceeds, which resulted in higher distributions in 2003 and a higher distribution payable at December 31, 2003. During 2003 and 2002, the Partnership distributed $816,619 and $669,560 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $35.27 and $28.70 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2003, eight Limited Partners redeemed a total of 117.84 Partnership Units for $81,076 in accordance with the Partnership Agreement. During 2002, eight Limited Partners redeemed a total of 210.02 Partnership Units for $156,938. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 33 Limited Partners redeemed 764.65 Partnership Units for $647,929. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $819 and $1,586 in 2003 and 2002, respectively. The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. ITEM 7. FINANCIAL STATEMENTS. See accompanying index to financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet as of December 31, 2003 and 2002 Statements for the Years Ended December 31, 2003 and 2002: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements REPORT OF INDEPENDENT AUDITORS To the Partners: AEI Income & Growth Fund XXI Limited Partnership St. Paul, Minnesota We have audited the accompanying balance sheet of AEI Income & Growth Fund XXI Limited Partnership (a Minnesota limited partnership) as of December 31, 2003 and 2002 and the related statements of income, cash flows and changes in partners' capital for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXI Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants Minneapolis, Minnesota January 23, 2004 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 2003 2002 CURRENT ASSETS: Cash and Cash Equivalents $ 6,018,352 $ 4,653,629 Receivables 579 15,194 ----------- ----------- Total Current Assets 6,018,931 4,668,823 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 4,770,063 5,367,113 Buildings and Equipment 10,063,261 10,035,149 Construction in Progress 0 44,281 Accumulated Depreciation (862,718) (1,399,695) ----------- ----------- 13,970,606 14,046,848 Real Estate Held for Sale 264,200 0 ----------- ----------- Net Investments in Real Estate 14,234,806 14,046,848 ----------- ----------- Total Assets $20,253,737 $18,715,671 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 160,512 $ 28,714 Distributions Payable 951,129 648,117 ----------- ----------- Total Current Liabilities 1,111,641 676,831 ----------- ----------- PARTNERS' CAPITAL: General Partners 28,987 17,954 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,907 and 23,025 Units outstanding in 2003 and 2002, respectively 19,113,109 18,020,886 ----------- ----------- Total Partners' Capital 19,142,096 18,038,840 ----------- ----------- Total Liabilities and Partners'Capital $20,253,737 $18,715,671 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 2003 2002 RENTAL INCOME $ 1,068,185 $ 901,142 EXPENSES: Partnership Administration - Affiliates 212,942 238,259 Partnership Administration and Property Management - Unrelated Parties 19,501 43,392 Depreciation 295,910 251,066 ----------- ----------- Total Expenses 528,353 532,717 ----------- ----------- OPERATING INCOME 539,832 368,425 OTHER INCOME: Interest Income 82,159 68,905 Gain on Sale of Real Estate 2,639 1,533,515 ----------- ----------- Total Other Income 84,798 1,602,420 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 624,630 1,970,845 Income from Discontinued Operations 2,742,350 498,693 ----------- ----------- NET INCOME $ 3,366,980 $ 2,469,538 =========== =========== NET INCOME ALLOCATED: General Partner $ 33,670 $ 24,396 Limited Partners 3,333,310 2,445,142 ----------- ----------- $ 3,366,980 $ 2,469,538 =========== =========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 26.89 $ 84.17 Discontinued Operations 118.06 21.30 ----------- ----------- Total $ 144.95 $ 105.47 =========== =========== Weighted Average Units Outstanding 22,996 23,183 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,366,980 $ 2,469,538 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 424,079 418,476 Gain on Sale of Real Estate (2,343,954) (1,520,271) (Increase) Decrease in Receivables 14,615 (5,627) Increase (Decrease) in Payable to AEI Fund Management, Inc. 131,798 (8,777) ----------- ----------- Total Adjustments (1,773,462) (1,116,199) ----------- ----------- Net Cash Provided By Operating Activities 1,593,518 1,353,339 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (5,658,584) (4,974,732) Proceeds from Sale of Real Estate 7,390,501 5,609,087 ----------- ----------- Net Cash Provided By Investing Activities 1,731,917 634,355 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in Distributions Payable 303,012 242,398 Distributions to Partners (2,181,829) (1,878,779) Redemption Payments (81,895) (158,524) ----------- ----------- Net Cash Used For Financing Activities (1,960,712) (1,794,905) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,364,723 192,789 CASH AND CASH EQUIVALENTS, beginning of period 4,653,629 4,460,840 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 6,018,352 $ 4,653,629 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partner Partners Total Outstanding BALANCE, December 31, 2001 $ 13,932 $17,592,673 $17,606,605 23,235.35 Distributions (18,788) (1,859,991) (1,878,779) Redemption Payments (1,586) (156,938) (158,524) (210.02) Net Income 24,396 2,445,142 2,469,538 -------- ----------- ----------- ----------- BALANCE, December 31, 2002 17,954 18,020,886 18,038,840 23,025.33 Distributions (21,818) (2,160,011) (2,181,829) Redemption Payments (819) (81,076) (81,895) (117.84) Net Income 33,670 3,333,310 3,366,980 -------- ----------- ----------- ----------- BALANCE, December 31, 2003 $ 28,987 $19,113,109 $19,142,096 22,907.49 ======== =========== =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (1) Organization - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (AEI), an affiliate of AFM, performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (1) Organization - (Continued) For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (2) Summary of Significant Accounting Policies - Financial Statement Presentation The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (2) Summary of Significant Accounting Policies - (Continued) Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate. Cash Concentrations of Credit Risk The Partnership's cash is deposited primarily in one financial institution and at times during the year it may exceed FDIC insurance limits. Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents may include cash in checking, cash invested in money market accounts, certificates of deposit, federal agency notes and commercial paper with a term of three months or less. Receivables Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral. Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership's credit terms. Receivables considered uncollectible are written off. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (2) Summary of Significant Accounting Policies - (Continued) Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements. The tax return, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes with respect to the Partnership qualification or in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate The Partnership's real estate is leased under triple net leases classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenue according to the terms of the individual leases. For leases which contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases. Real estate is recorded at the lower of cost or estimated net realizable value. The Partnership compares the carrying amount of its properties to the estimated probability-weighted future cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. The Partnership has capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (2) Summary of Significant Accounting Policies - (Continued) In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. Reclassification Certain items in the prior year's financial statements have been reclassified to conform to 2003 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. Newly Issued Pronouncements The Partnership has considered the accounting pronouncements issued after December 2002 and has determined that none of these pronouncements will have a material impact on its financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (3) Related Party Transactions - As of December 31, 2003, the Partnership owns a 3.7372% interest in a Garden Ridge retail store. AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership, affiliates of the Partnership, owned interests in this property until the interests were sold, in a series of transactions, to unrelated third parties in 2003. The Partnership owns a 1.1839% interest in a Johnny Carino's restaurant in Austin, Texas. AEI Real Estate Fund 85-A Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, and AEI Income & Growth Fund 23 LLC, affiliates of the Partnership, owned interests in this property until the interests were sold, in a series of transactions, to unrelated third parties in 2002. As of December 31, 2003, the Partnership owns a 36.4787% interest in a Winn-Dixie store. The remaining interests in this property are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties. AEI Income & Growth Fund 24 LLC, an affiliate of the Partnership, owned a 26% interest in this property until the interest was sold, in two transactions, to unrelated parties in 2003. The Partnership owns a 50% interest in a Jared Jewelry store in Hanover, Maryland. The remaining interest in this property is owned by AEI Net Lease Income & Growth Fund XX Limited Partnership. The Partnership owned a 25% interest in a Champps Americana restaurant in Centerville, Ohio. AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership, affiliates of the Partnership, owned interests in this property until the interests were sold, in a series of transactions, to unrelated third parties in 2003. The Partnership owned a 49.6% interest in a Champps Americana restaurant in Schaumburg, Illinois. The remaining interests in this property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and unrelated third parties. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (3) Related Party Transactions - (Continued) AEI and AFM received the following compensation and reimbursements for costs and expenses from the Partnership: Total Incurred by the Partnership for the Years Ended December 31 2003 2002 a.AEI and AFM are reimbursed for all costs incurred in connection with managing the Partnership's operations, maintaining the Partnership's books and communicating the results of operations to the Limited Partners. $ 212,942 $ 238,259 ======== ======== b.AEI and AFM are reimbursed for all direct expenses they have paid on the Partnership's behalf to third parties relating to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit and accounting costs, taxes, insurance and other property costs. $ 25,128 $ 54,147 ======== ======== c.AEI is reimbursed for all costs and direct expenses incurred by it in acquiring properties on behalf of the Partnership. The amounts are net of financing and commitment fees and expense reimbursements received by the Partnership from the lessees in the amount of $10,695 and $120,482 for 2003 and 2002, respectively. $ 92,365 $ (42,550) ======== ======== d.AEI is reimbursed for all costs incurred in connection with the sale of property. $ 185,048 $ 206,175 ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c and d. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (4) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 20 years, except for the Children's World daycare centers and the Tumbleweed restaurant, which have Lease terms of 15 years and the Johnny Carino's restaurant in Laredo, Texas which has a Lease term of 13 years. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Tumbleweed restaurants, 14 years for the Johnny Carino's restaurant in Farmington, New Mexico, 15 years for the Children's World daycare centers, the Champps Americana restaurants and the Johnny Carino's restaurants in Austin and Laredo, Texas and 25 years for the Garden Ridge and Winn-Dixie retail stores. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The Partnership's properties are commercial, single-tenant buildings. The Arby's restaurant was constructed and acquired in 1995. The Garden Ridge retail store was constructed and acquired in 1996. The Champps Americana restaurants in San Antonio, Texas and Livonia, Michigan were constructed and acquired in 1997 and 1998, respectively. The Tumbleweed restaurant was constructed and acquired in 2000. The Johnny Carino's restaurant in Austin, Texas was constructed and acquired in 2001. The Children's World daycare centers in Andover, Minnesota and Kimberly, Wisconsin were constructed in 1998 and acquired in 2002. The Children's World daycare center in Ballwin, Missouri was constructed in 1999 and acquired in 2002. The land for the Johnny Carino's restaurant in Farmington, New Mexico was acquired in 2002 and construction of the restaurant was completed in 2003. The Winn-Dixie store was constructed in 1997 and acquired in 2003. The Johnny Carino's restaurant in Laredo, Texas was constructed in 1999 and acquired in 2003. There have been no costs capitalized as improvements subsequent to the acquisitions. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (4) Investments in Real Estate - (Continued) The cost of the properties and related accumulated depreciation at December 31, 2003 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 10,033 $ 13,016 $ 23,049 $ 4,469 Champps Americana, San Antonio, TX 1,127,016 1,706,341 2,833,357 469,182 Champps Americana, Livonia, MI 1,753 4,613 6,366 1,163 Tumbleweed, Fort Wayne,IN 562,078 772,237 1,334,315 120,580 Johnny Carino's, Austin,TX 13,771 13,312 27,083 1,233 Children's World, Andover, MN 179,755 1,084,452 1,264,207 66,874 Children's World, Ballwin, MO 255,080 1,262,698 1,517,778 77,867 Children's World, Kimberly, WI 312,007 1,046,232 1,358,239 64,517 Johnny Carino's, Farmington, NM 817,862 1,365,482 2,183,344 41,009 Winn-Dixie, Panama City, FL 334,493 1,356,310 1,690,803 15,824 Johnny Carino's, Laredo, TX 1,156,215 1,438,568 2,594,783 0 ----------- ----------- ----------- --------- $ 4,770,063 $10,063,261 $14,833,324 $ 862,718 =========== =========== =========== ========= Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the year ended December 31, 2002, the net gain was $1,464,843. During the third quarter of 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (4) Investments in Real Estate - (Continued) During 2003 and 2002, the Partnership distributed $816,619 and $669,560 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $35.27 and $28.70 per Limited Partnership Unit, respectively. The remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to Knowledge Learning Enterprises, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. Through December 31, 2002, the Partnership had advanced $44,281 for construction of the property. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. On December 23, 2003, the Partnership sold .5213% of the Winn-Dixie store in Panama City, Florida to an unrelated third party. The Partnership received net sale proceeds of $26,607, which resulted in a net gain of $2,639. The cost and related accumulated depreciation of the interest sold was $24,162 and $194, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (4) Investments in Real Estate - (Continued) Subsequent to December 31, 2003, the Partnership sold 16.0762% of the Winn-Dixie store, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of approximately $872,000, which resulted in a net gain of approximately $135,000. On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,594,783. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. Subsequent to December 31, 2003, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for approximately $1,963,800. The property is leased to Sterling Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. Subsequent to December 31, 2003, the Partnership entered into an agreement to purchase a 50% interest in an Eckerd drug store in Buffalo, New York for approximately $1,606,500. The property will be leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of approximately $133,000. AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership, entered into an agreement to purchase the remaining interest in the property. The Partnership owns a 2.6811% interest in an Arby's restaurant. The remaining interests in this property are owned by unrelated third parties, who own the property with the Partnership as tenants-in-common. For properties owned as of December 31, 2003, the minimum future rent payments required by the leases are as follows: 2004 $ 1,480,281 2005 1,483,736 2006 1,490,615 2007 1,497,647 2008 1,505,241 Thereafter 14,648,136 ----------- $22,105,656 =========== There were no contingent rents recognized in 2003 or 2002. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (5) Major Tenants - The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31: 2003 2002 Tenants Industry Knowledge Learning Enterprises, Inc. Child Care $ 459,999 $ 368,989 Garden Ridge, L.P. Retail 400,467 423,945 Champps Americana Group Restaurant 386,255 602,580 SFG Farmington-I Limited Partnership Restaurant 171,757 N/A ----------- ----------- Aggregate rent revenue of major tenants $ 1,418,478 $ 1,395,514 =========== =========== Aggregate rent revenue of major tenants as a percentage of total rent revenue 88% 88% =========== =========== (6) Discontinued Operations - In May 2001, Huntington Restaurants Group, Inc. (HRG), the lessee of the Denny's Restaurant in Covington, Louisiana notified the Partnership that it was experiencing financial problems and would not make the lease payments while they worked out a plan which would enable them to continue operations without seeking bankruptcy protection. In October, 2001, the Partnership received an offer to buy the restaurant for $900,000 from an unrelated third party. Effective December 10, 2001, the Partnership terminated the Lease to accommodate the sale. Through this date, HRG owed $80,316 of rent, which will not be collected and was not accrued for financial reporting purposes. In the third quarter of 2001, a charge to operations for real estate impairment of $295,354 was recognized, which was the difference between the book value at September 30, 2001 of $1,145,354 and the estimated net sales proceeds of $850,000. The charge was recorded against the cost of the building and equipment. On February 19, 2002, the sale closed with the Partnership receiving net sale proceeds of $816,143 which resulted in a net loss of $29,982. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (6) Discontinued Operations - (Continued) Through December 31, 2002, the Partnership sold its 49.6% interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the year ended December 31, 2002, the net gain was $16,738. During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. During the third quarter of 2003, the Partnership sold its 25% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store, in eleven separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. Subsequent to December 31, 2003, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of approximately $392,000, which resulted in a net gain of approximately $128,000. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (6) Discontinued Operations - (Continued) The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the years ended December 31: 2003 2002 Rental Income $ 534,831 $ 690,102 Property Management Expenses (5,627) (10,755) Depreciation (128,169) (167,410) Gain (Loss) on Disposal of Real Estate 2,341,315 (13,244) ----------- ----------- Income from Discontinued Operations $ 2,742,350 $ 498,693 =========== =========== (7) Partners' Capital - Cash distributions of $21,818 and $18,788 were made to the General Partners and $2,160,011 and $1,859,991 were made to the Limited Partners for the years ended December 31, 2003 and 2002, respectively. The Limited Partners' distributions represent $93.93 and $80.23 per Limited Partnership Unit outstanding using 22,996 and 23,183 weighted average Units in 2003 and 2002, respectively. The distributions represent $93.93 and $80.23 per Unit of Net Income. As part of the Limited Partner distributions discussed above, the Partnership distributed $808,453 and $662,865 of proceeds from property sales in 2003 and 2002, respectively. Distributions of Net Cash Flow to the General Partners during 2003 and 2002 were subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions were allocated to the Limited Partners and 1% to the General Partners. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (7) Partners' Capital - (Continued) During 2003, eight Limited Partners redeemed a total of 117.84 Partnership Units for $81,076 in accordance with the Partnership Agreement. During 2002, eight Limited Partners redeemed a total of 210.02 Partnership Units for $156,938. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $819 and $1,586 in 2003 and 2002, respectively. After the effect of redemptions, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $1,047.69 per original $1,000 invested. (8) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 2003 2002 Net Income for Financial Reporting Purposes $ 3,366,980 $ 2,469,538 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 117,002 135,151 Amortization of Start-Up and Organization Costs 0 (13,974) Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (312,734) (477,558) ----------- ----------- Taxable Income to Partners $ 3,171,248 $ 2,113,157 =========== =========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 (8) Income Taxes - (Continued) The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 2003 2002 Partners' Capital for Financial Reporting Purposes $19,142,096 $18,038,840 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 270,637 466,369 Capitalized Start-Up Costs Under Section 195 291,517 291,517 Amortization of Start-Up and Organization Costs (297,517) (297,517) Organization and Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,214,043 3,214,043 ----------- ----------- Partners' Capital for Tax Reporting Purposes $22,620,776 $21,713,252 =========== =========== (9) Fair Value of Financial Instruments - The estimated fair values of the financial instruments, none of which are held for trading purposes, are as follows at December 31: 2003 2002 Carrying Fair Carrying Fair Amount Value Amount Value Money Market Funds $6,018,352 $6,018,352 $4,653,629 $4,653,629 ---------- ---------- ---------- ---------- Total Cash and Cash Equivalents $6,018,352 $6,018,352 $4,653,629 $4,653,629 ========== ========== ========== ========== ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 8A. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of the Partnership are adequately designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. (b) Changes in internal controls There were no significant changes made in the Partnership's internal controls during the most recent period covered by this report that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The General Partners are AEI Fund Management XXI, Inc. (AFM), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 35 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows: Robert P. Johnson, age 59, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in August 1994, and has been elected to continue in these positions until December 2004. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in tax-advantaged limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the National Association of Securities Dealers, Inc. (NASD) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in thirteen limited partnerships and a managing member in three LLCs. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. (Continued) Patrick W. Keene, age 44, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2004. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1986. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Peat Marwick Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant. Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM. Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors. Section 16(a) Beneficial Ownership Reporting Compliance Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-KSB any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2003. With the exception of Patrick Keene, who filed his initial report on Form 3 late, based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2003 fiscal year. ITEM 10. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative, property management and property sales services. The amount and nature of such payments are detailed in Item 12 of this annual report on Form 10-KSB. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 29, 2004: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 Robert P. Johnson 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 Patrick W. Keene 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2003 and 2002. The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for certain expenses will not exceed an amount equal to the sum of (i) 20% of gross offering proceeds, (ii) 5% of Net Cash Flow for property management, (iii) 3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The cumulative reimbursements subject to this limitation are reimbursements for (i) organization and offering expenses, including commissions, (ii) acquisition expenses, (iii) services provided in the sales effort of properties, and (iv) expenses of controlling persons and overhead expenses directly attributable to the forgoing services or attributable to administrative services. As of December 31, 2003, these cumulative reimbursements to the General Partners and their affiliates did not exceed the limitation amount. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 2003. Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 2003 AEI Securities, Inc. Selling Commissions equal to $2,400,000 8% of proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. General Partners and Reimbursement at Cost for other $ 877,000 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 463,236 Affiliates Acquisition Expenses General Partners and Reimbursement at Cost for all $2,096,265 Affiliates Administrative Expenses attributable to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners and Reimbursement at Cost for all $ 708,416 Affiliates expenses related to the disposition of the Fund's properties. General Partners 1% of Net Cash Flow in any fiscal $ 123,391 year until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year. General Partners 1% of distributions of Net Proceeds $ 29,055 of Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits - Description 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed October 10, 1994 [File No. 33- 85076C]). 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed January 20, 1995 [File No. 33-85076C]). 10.1 Net Lease Agreement dated May 31, 1995, between the Partnership and RTM Gulf Coast, Inc., relating to the Property at 2719 Zelda Road, Montgomery, Alabama (incorporated by reference to Exhibit A of Form 8-K filed June 14, 1995). 10.2 Net Lease Agreement dated August 2, 1995, between TKC X, LLC and Garden Ridge, Inc. relating to the Property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.1 of Form 8-K filed April 10, 1996). 10.3 First Amendment to Lease Agreement dated March 1, 1996 between TKC X, LLC and Garden Ridge, L.P. relating to the Property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.2 of Form 8-K filed April 10, 1996). 10.4 Assignment and Assumption of Lease dated March 28, 1996 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, and TKC X, LLC relating to the Property at 11415 Carolina Place Parkway, Pineville, North Carolina (incorporated by reference to Exhibit 10.3 of Form 8-K filed April 10, 1996). 10.5 Net Lease Agreement dated March 14, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the Property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed March 25, 1997). 10.6 Net Lease Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the Property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed August 5, 1997). 10.7 First Amendment to Net Lease Agreement dated December 23, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the Property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed January 5, 1998). 10.8 First Amendment to Net Lease Agreement dated May 19, 1998 between the Partnership and Champps Americana, Inc. relating to the Property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 8-K filed June 16, 1998). 10.9 Net Lease Agreement dated March 8, 2000, between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.29 of Form 10-KSB filed March 10, 2000). 10.10 First Amendment to Net Lease Agreement dated September 11, 2000 between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 7, 2000). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (Continued) A. Exhibits - Description 10.11 Second Amendment to Net Lease Agreement dated September 11, 2000 between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 7, 2000). 10.12 Net Lease Agreement dated March 8, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, AEI Income & Growth Fund 23 LLC and Kona Restaurant Group, Inc. relating to the Property at 5601 Brodie Lane, Austin, Texas (incorporated by reference to Exhibit 10.4 of Form 10-QSB filed May 10, 2001). 10.13 First Amendment to Net Lease Agreement dated September 26, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Income & Growth Fund XX Limited Partnership, AEI Income & Growth Fund 23 LLC and Kona Restaurant Group, Inc. relating to the Property at 5601 Brodie Lane, Austin, Texas (incorporated by reference to Exhibit 10.10 of Form 10-QSB filed October 26, 2001). 10.14 Assignment of Purchase and Sale Agreement dated May 24, 2002 between the Partnership and AEI Fund Management, Inc. relating to the Property at 1485 Bunker Lake Boulevard NW, Andover, Minnesota (incorporated by reference to Exhibit 10.1 of Form 8-K filed June 18, 2002). 10.15 Assignment of Purchase and Sale Agreement dated May 24, 2002 between the Partnership and AEI Fund Management, Inc. relating to the Property at 497 Big Bend Road, Ballwin, Missouri (incorporated by reference to Exhibit 10.2 of Form 8-K filed June 18, 2002). 10.16 Assignment of Purchase and Sale Agreement dated May 24, 2002 between the Partnership and AEI Fund Management, Inc. relating to the Property at 749 Truman Street, Kimberly, Wisconsin (incorporated by reference to Exhibit 10.3 of Form 8-K filed June 18, 2002). 10.17 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 1485 Bunker Lake Boulevard NW, Andover, Minnesota (incorporated by reference to Exhibit 10.4 of Form 8-K filed June 18, 2002). 10.18 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 497 Big Bend Road, Ballwin, Missouri (incorporated by reference to Exhibit 10.5 of Form 8-K filed June 18, 2002). 10.19 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 749 Truman Street, Kimberly, Wisconsin (incorporated by reference to Exhibit 10.6 of Form 8-K filed June 18, 2002). 10.20 Development Financing Agreement dated October 31, 2002 between the Partnership and SFG Farmington I Limited Partnership relating to the Property at 3500 East Main Street, Farmington, New Mexico (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 1, 2002). 10.21 Net Lease Agreement dated October 31, 2002 between the Partnership and SFG Farmington I Limited Partnership relating to the Property at 3500 East Main Street, Farmington, New Mexico (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 1, 2002). 10.22 First Amendment to Net Lease Agreement dated May 28, 2003 between the Partnership and SFG Farmington I Limited Partnership relating to the Property at 3500 East Main Street, Farmington, New Mexico (incorporated by reference to Exhibit 10.2 of Form 8-K filed June 2, 2003). ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (Continued) A. Exhibits - Description 10.23 Assignment of Sale-Purchase Agreement dated August 19, 2003 between the Partnership and AEI Fund Management, Inc. relating to the Property at 3621 Highway 231 North, Panama City, Florida (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 11, 2003). 10.24 Assignment and Assumption of Lease Agreement dated September 19, 2003 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Income & Growth Fund 24 LLC and Transmitter Crossing, LLC relating to the Property at 3621 Highway 231 North, Panama City, Florida (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 11, 2003). 10.25 Assignment of Agreement of Sale and First Amendment to Agreement of Sale dated December 23, 2003 between the Partnership and AEI Fund Management, Inc. relating to the Property at 7603 San Dario Avenue, Laredo, Texas (incorporated by reference to Exhibit 10.1 of Form 8-K filed January 2, 2004). 10.26 Net Lease Agreement dated December 30, 2003 between the Partnership and Kona Restaurant Group, Inc. relating to the Property at 7603 San Dario Avenue, Laredo, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed January 2, 2004). 10.27 Assignment of Purchase Agreement dated January 2, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Fund Management, Inc. relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 17, 2004). 10.28 Assignment and Assumption of Lease dated February 9, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and Transmills, LLC relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 17, 2004). 10.29 Assignment of Purchase and Sale Agreement dated March 1, 2004 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and AEI Fund Management, Inc. relating to the Property at 2585 Main Street, Buffalo, New York. 31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. B. Reports on Form 8-K - None. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The following is a summary of the fees billed to the Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for professional services rendered for the years ended December 31, 2003 and 2002: Fee Category 2003 2002 Audit Fees $ 11,359 $ 10,355 Audit-Related Fees 500 0 Tax Fees 0 0 All Other Fees 0 0 --------- -------- Total Fees $ 11,859 $ 10,355 ========= ======== Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership's annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements. Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards. Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning. All Other Fees - Consists of fees for products and services other than the services reported above. Policy for Preapproval of Audit and Permissible Non-Audit Services of Independent Auditors Before the Independent Auditors are engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership's audit committee. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEI INCOME & GROWTH FUND XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 19, 2004 By: /s/ Robert P Johnson Robert P. Johnson, President and Director (Principal Executive Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Robert P Johnson President (Principal Executive Officer) March 19, 2004 Robert P.Johnson and Sole Director of Managing General Partner /s/ Patrick W Keene Chief Financial Officer and Treasurer March 19, 2004 Patrick W.Keene (Principal Accounting Officer) EX-10.29 4 ekrbfasg.txt ASSIGNMENT OF PURCHASE AGREEMENT THIS ASSIGNMENT made and entered into this 1st day of March, 2004, by and between AEI FUND MANAGEMENT, INC., a Minnesota corporation, ("Assignor") and AEI Income & Growth Fund XXI Limited Partnership, a Minnesota limited partnership, and AEI Accredited Investor Fund 2002 Limited Partnership, a Minnesota limited partnership (as tenants in common, together collectively referred to as "Assignee"); WITNESSETH, that: WHEREAS, on the 17th day of December, 2003, Assignor entered into a Purchase Agreement ("the Agreement") for that certain property located at 2585 Main Street, Buffalo, New York, and more particularly described in Exhibit A attached hereto and incorporated herein (the "Property") with Ronald Benderson and David H. Baldauf, as Trustees under the Randall Benderson 1993-1 Trust dated September 22, 1993 and Richard Franco (together collectively referred to as "Seller"); and WHEREAS, Assignor desires to assign to AEI Income & Growth Fund XXI, an undivided fifty percent (50.0%) interest as a tenant in common; and AEI Accredited Investor Fund 2002 Limited Partnership, an undivided fifty percent (50.0%) interest as a tenant in common, of its rights, title and interest in, to and under the Agreement as hereinafter provided; NOW, THEREFORE, for One Dollar ($1.00) and other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed between the parties as follows: 1. Assignor assigns all of its rights, title and interest in, to and under the Agreement to Assignee, to have and to hold the same unto the Assignee, its successors and assigns; 2. Assignee hereby assumes all rights, promises, covenants, conditions and obligations under the Agreement to be performed by the Assignor thereunder, and agrees to be bound for all of the obligations of Assignor under the Agreement. All other terms and conditions of the Agreement shall remain unchanged and continue in full force and effect. ASSIGNOR: AEI FUND MANAGEMENT, INC. By: /s/ Robert P Johnson Robert P. Johnson, its President ASSIGNEE: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership BY: AEI FUND MANAGEMENT XXI, INC., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Robert P. Johnson, its President AEI ACCREDITED INVESTOR FUND 2002 LIMITED PARTNERSHIP, a Delaware corporation BY: AEI FUND MANAGEMENT XVIII, INC., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Robert P. Johnson, its President EXHIBIT A Legal description All That Tract or Parcel of Land, situate in the City of Buffalo, County of Erie, and State of New York, being part of Lot No. 44, Township 11, Range 8 of the Holland Land Company's Survey, bounded and described as follows: Beginning at the intersection of the southeasterly line of Main Street and the westerly line of Fillmore Avenue; thence southerly and along the westerly line of Fillmore Avenue a distance of 418.93 feet to a point' thence westerly and along a line drawn at right angles to the westerly line of Fillmore Avenue a measured distance of 147.38 feet (147.69 feet) to a point' thence northerly at an interior angle of 66 18' 29" a measured distance of 22.11 feet to a point on a line drawn at right angles to a southeasterly line of Main Street and measuring 139.22 feet (139.38 feet deed) therefrom; thence westerly at a n interior angle of 255 16' 31" a measured distance 139.22 feet (138.38 feet deed) to a point in the southeasterly line of Main Street; thence northeasterly at an interior angle of 90 00' 00" and along the southeasterly line of Main Street a distance of 398.43 feet to a point and place of beginning. PURCHASE AND SALE AGREEMENT This Purchase and Sale Agreement (this "Agreement") is entered into as of this 17th day of November, 2003 (the "Effective Date") among RONALD BENDERSON and DAVID H. BALDAUF, as Trustees under the Randall Benderson 1993-1 Trust dated September 22, 1993 (the "1993-1 Trust"), RICHARD FRANCO ("Franco") and AEI FUND MANAGEMENT, INC., a Minnesota corporation ( "Buyer"). In consideration of the mutual covenants set forth herein and in consideration of the earnest money deposit herein called for, the parties agree as follows: Section 1. SALE AND PURCHASE. The Trustees of the 1993-1 Trust and Franco (collectively, "Seller") shall sell, convey, and assign to Buyer, and Buyer shall purchase, assume and accept from Seller, for the Purchase Price (hereinafter defined) and on and subject to the terms and conditions herein set forth, the following: (a) the tract or parcel of Land containing approximately 1.337 acres and located at 2585 Main Street, Buffalo, New York, and more particularly described in Exhibit A attached hereto (the "Land"), all improvements located on the Land, including a certain retail building which consists of approximately 11,347 square feet of retail space (the "Improvements"); and all rights, titles, easements and interests appurtenant to the Land and/or Improvements; (b) any and all equipment, including without limitation HVAC equipment, furniture, fixtures and other personal property owned by Seller and now or as of the Closing Date installed on, attached to or otherwise located on the Land or in the Improvements (collectively, the "Personal Property"); and (c) all of the landlord's interest in and rights and obligations under the Lease dated August 26, 1998, originally by and between (i) Seller, as landlord, with the landlord's interest thereunder having been assigned to Randall Benderson and David H. Baldauf, as Trustees of the Ronald Benderson 1995 Trust dated December 29, 1995 (the "1995 Trust") and Franco, and (ii) Fay's Incorporated, as tenant, with the tenant's interest thereunder having been assigned to or otherwise acquired by Eckerd Corporation, a Delaware corporation ("Tenant"), which Lease provides for the use and occupancy of the Improvements and Land (the "Lease"), and all rents prepaid thereunder for any period subsequent to the Closing Date (defined below); (d) all permits and other governmental approvals or consents relating to the Landlord/or the Improvements including without limitation any variances, conditional use permits, special use permits or occupancy permits (collectively, "Seller Permits"); and (e) all rights and interests of either Seller or the trustees of the 1995 Trust in any of the following to the extent the same relate to the Land and/or the Improvements: (1) any warranties, guaranties and indemnities, (2) plans, drawings, specifications, surveys, engineering reports, permits, governmental approvals and other technical information, and (3) any trade names or other intangible property relating to the leasing, maintenance, service, use or operation of the Land, Improvements, or the Lease (collectively, the "Warranties, Plans and Intangible Property"). The above-listed items are herein collectively called the "Property". All of the Property shall be sold, conveyed, and assigned to Buyer at Closing (defined below) free and clear of all liens except for the lien of real property taxes not yet due and payable, and subject to the Permitted Encumbrances (defined below). Section 2. PURCHASE AND SALE. Seller agrees to sell to Buyer, and Buyer agree to purchase from Seller, the Property upon the terms and conditions set forth in this Agreement. Section 3. PURCHASE PRICE. The Purchase Price ("Purchase Price") for the Property shall be Three Million Two Hundred Thirteen Thousand and 00/100 Dollars ($3,213,000.00) to be paid in cash or cash equivalent as set forth in Section 11 hereof. Such Purchase Price is based upon a projected 8.25% yield for Buyer based on current base rent payable under the Lease (on a fully net basis) . Section 4. EARNEST MONEY. Within two (2) business days after the Effective Date, Buyer shall deliver to Commonwealth Land Title Insurance Company ("Title Company"), at its office in St. Paul, Minnesota a check or wire transfer in the amount of $50,000.00 which the Title Company shall immediately deposit for collection in an interest- bearing account, upon Buyer executing and delivering an IRS Form W-9 to the Title Company and Seller and Buyer executing an escrow agreement with respect to the Earnest Money in the form attached hereto and incorporated herein as Exhibit B. As used in this Agreement, the term "Earnest Money" shall mean the amount deposited by Buyer, together with all interest earned thereon while in the custody of Title Company. At the Closing, the Earnest Money and any interest earned thereon will be paid to Seller and applied as a credit against the Purchase Price. If this Agreement is terminated for any reason other than Buyer's default, the Earnest Money and any interest earned thereon in full shall be promptly returned to Buyer. Section 5. DELIVERY OF INFORMATION BY SELLER. Within five (5) days after the Effective Date hereof, Seller shall deliver to Buyer all of the following (collectively, "Due Diligence Documents"), to the extent the same are in Seller's possession or control or otherwise reasonably available to Seller: (a) Any Phase I Environmental Reports, testing reports and any other reports or documents regarding or relating to the environmental condition of the Property; (b) A copy of the executed Lease and any amendments or modifications thereto; (c) Any soils, geotechnical or other engineering reports; (d) Any zoning letter or other written information concerning the current zoning of the Property; (e) As built Building and/or landscape plans and specifications; (f) The current real estate tax statement for the Land and Improvements; (l) Any management, maintenance or service agreements relating to the Property ("Property Agreements"); (m) Seller's general construction contract with respect to the Improvements; (n) Seller's Permits; (o) Any financial statements or sales reports received by Seller from the Tenant applicable to years 2000 through 2003; (p) Any appraisals of the Property or any part thereof; (q) Copy of all Seller Permits; (r) A copy of a survey of the Land and Improvements dated February 7, 2000 prepared by W. Schutt & Associates (the "Existing Survey"); (s) Copies of any existing or proposed warranties, guaranties or indemnities relating to the Land or the Improvements; and (t) All other books, records and reports prepared in connection with the ownership, management or maintenance of the Property. Seller represents that the copies of the documents, agreements and other materials delivered to Buyer hereunder are true, correct and complete copies thereof. Section 6. DUE DILIGENCE PERIOD. Buyer shall have the right during a period commencing with the date of this Agreement and ending thirty (30) days after the receipt of the Due Diligence Documents (the "Due Diligence Period"), at its sole cost, expense and risk, to examine and inspect the physical and environmental condition of the Property, status of compliance of the Property with applicable building, zoning and health laws and to conduct feasibility studies with regard to the ownership and operation of the Property. Buyer, its contractors, consultants and representatives, may enter upon the Property, whether before or after the end of the Due Diligence Period, to inspect the Property and conduct a due diligence review of the same, and may conduct tests and examinations with regard thereto. Buyer shall promptly restore the Property to substantially the same condition in which it existed immediately prior to any physical tests conducted by or on behalf of Buyer. Buyer shall hold Seller harmless from any and all damages, liabilities or claims caused by the negligence or wrongful act of Buyer, their employees, agents or contractors, in exercising their rights under this Section 6. If at the end of the Due Diligence Period, Buyer elects to proceed with the purchase of the transaction contemplated hereby, Buyer shall so notify Seller in writing (a "Notice to Proceed"), given within five (5) days after the expiration of the Due Diligence Period. In the event that Buyer fails to provide such notice, this Agreement, and the transactions contemplated herein, will be considered terminated and all Earnest Money, will be returned to Buyer. If Buyer does provide Seller a Notice to Proceed as contemplated above, the Earnest Money shall become non-refundable, except to the extent that any of the contingencies to Buyer's performance hereunder shall not be satisfied or waived by Buyer in writing. Section 7. TITLE; SURVEY. As soon as reasonably possible, but in any event within the timeframes set forth below, Seller shall, at its expense, furnish the following (collectively, the "Title Evidence") to Buyer: (a) Title Insurance Commitment and Abstract. Within ten (10) days after the date hereof, a current commitment for an ALTA 1992 Owner's Policy of Title Insurance, with extended coverage, issued by Ticor Title Insurance Company copies of all documents referenced therein, and endorsements for appurtenant easements (if any), the so-called "Fairway" endorsement, and such other matters as may be reasonably identified by Buyer, in the amount of the Purchase Price (the "Commitment"). The Commitment shall disclose in writing any liens, charges or encumbrances which remain of record but which the Title Company has agreed to "insure over." The Commitment will commit the Title Company to insure title to the Real Property subject only to the encumbrances permitted by Buyer in accordance with the provisions set forth in this Section 7. (b) UCC Searches. As soon as reasonably possible after the date hereof, duly certified reports covering the filing of security agreements and/or financing statements, affecting any of the Personalty (the "UCC Report"). Buyer shall be allowed fifteen (15) days after receipt of all of the Title Evidence for examination of the same and making of any objections thereto, said objections to be made in writing or deemed to be waived; provided, however, that Buyer shall not be obligated to object to liens or encumbrances which may be removed by the payment of money. If any objections are so made, Seller shall use reasonable efforts to correct any valid title objections within thirty (30) days after receipt of said objections and, pending such correction, the closing hereunder shall be postponed, but upon correction of such title objections and within twenty (20) days after written notice of such correction given by Seller to Buyer, Seller and Buyer shall perform this Agreement according to its terms. If such objections are, in Buyer's reasonable judgment, not correctable within thirty (30) days, or if the same are not in fact corrected within thirty (30) days for any reason, then Buyer may, at its option, terminate this Purchase Agreement by notice to Seller, in which case all Earnest Money paid by Buyer to Seller hereunder (including all accrued interest thereon) shall be promptly refunded to Buyer, or may proceed to closing based on title in its then current condition. Any matters or encumbrances set forth in the Title Evidence (i) which are acceptable to Buyer or (ii) to which Buyer does not object as provided above shall be deemed "Permitted Encumbrances." Section 8. SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS. Seller hereby represents and warrants to, and covenants with Buyer that: (a) There are no unrecorded agreements or restrictions, other than the Lease and that certain Ground Lease dated August 1, 1998 by and between Seller, as ground lessor, and Franco and the trustees of the 1995 Trust, as ground lessee (the "Ground Lease"), relating to the Property or by which the Property or Buyer would be bound; (b) There are no Property Agreements which will survive Closing, unless Buyer shall otherwise agree in writing; (c) There are no actions or proceedings pending, which would materially affect the Property, or interrupt or delay construction of the Improvements; (d) The Lease is in full force and effect; no event has occurred or condition arisen which either constitutes, or would constitute with the passage of time or giving of notice or both, a default by Tenant under the Lease; (e) The consummation of the transactions contemplated hereunder, and the performance of this Agreement and the delivery of the "Deed" (as define below) to Buyer, will not result in any breach of, or constitute a default under, any instrument to which Seller is a party or by which Seller may be bound or affected; (f) Seller has full right, power, and authority to execute and deliver this Agreement and to consummate the purchase and sale transaction provided for herein without obtaining any further consents or approvals from, or the taking of any other actions with respect to, any third parties; and this Agreement, when executed and delivered by Seller and Buyer, will constitute the valid and binding agreement of Seller, enforceable against Seller in accordance with its terms; (g) The Property abuts on and has direct vehicular and pedestrian access to a public road; (h) There is no litigation pending or, to the best knowledge of Seller, threatened against or relating to the Property; (i) To Seller's best knowledge, there is no pending investigation, condemnation or proceeding of any kind which may have a material adverse affect upon the Property; (j) There are no outstanding or unpaid claims, actions, or causes of action related to any transaction or obligation entered into or incurred by Seller with respect to the Property prior to the date hereof; (k) The Property has not been used by Seller for the storage or disposal of any hazardous or toxic substance as defined in any applicable state or federal law governing or relating to the environment;; (l) Seller is not a "foreign person" (as defined in Section 1445(f) (3) of the Internal Revenue Code and regulations issued thereunder); (m) Seller has received no written notice that, and has no actual knowledge of, any condition on or about the Property which would cause the Property or any part thereof to be in violation of, or out of compliance with, any building codes, zoning ordinances, health and safety codes or other applicable rules, regulations or laws; (n) The present zoning of the Property permits the proposed use thereof by the Tenant under the Lease and the Property has, or will have upon completion of the Improvements, a legally adequate number of on-site parking spaces; and (o) Seller is not insolvent and is not and will not be rendered insolvent as a result of the transaction contemplated hereby. Seller hereby agrees that the truthfulness of each of said representations and warranties and all other representations and warranties herein made in a condition precedent to the performance by Buyer of Buyer's obligations hereunder; and that the said representations and warranties shall be true as of the date hereof and on the Closing Date. Upon the breach of any thereof, Buyer, prior to the Closing Date, may declare this Agreement to be null and void, or Buyer may elect to close this sale. If Buyer elects to declare this Agreement null and void, neither party shall have any rights or obligations hereunder, except that all Earnest Money herein paid, plus interest thereon, shall be promptly refunded to Buyer. Section 9. CONTINGENCIES TO BUYERS' PERFORMANCE. The obligation of Buyer to close this transaction, at the option of Buyer, shall be subject to each of the following conditions precedent: (a) All of the representations and warranties by Seller contained in Section 8 hereof shall be true and correct as of the Closing Date. (b) Seller shall have fully complied with and performed the conditions and agreements on its part required by the terms hereof. (c) Tenant shall not have ceased business operations at and from the Property. (d) All necessary government permits for the use and occupancy of the Property for the purposes contemplated by the Lease, including without limitation a permanent or unconditional certificate of occupancy, shall have been duly issued to Seller. (e) Seller shall have delivered to Buyer, not later than ten (10) days prior to the Closing Date an estoppel letter from Tenant, in form attached hereto and incorporated herein as Exhibit C (the "Tenant Estoppel"). (f) There shall have been no material adverse change in the physical or environmental condition of the Property between the end of the Due Diligence Period and the Closing Date. (g) Seller shall have delivered to Buyer an amendment to the Lease, in form and substance acceptable to the Buyer in its reasonable discretion, pursuant to which the Tenant has agreed to convert the Lease to a "fully net" lease. Buyer shall have the right to unilaterally waive any condition herein set forth and proceed to close. If any such condition has not been satisfied or waived by Buyer as of the Closing Date, Buyer may terminate this Purchase Agreement by written notice to Seller. If this Agreement is so terminated, the Earnest Money, plus interest accrued thereon, shall be promptly refunded to Buyer. Notwithstanding anything contained herein to the contrary, in the event that Seller is unable to satisfy the contingency set forth in subparagraph (g) above and this Purchase Agreement is terminated as a result, Seller shall reimburse to Buyer all of Buyer's reasonable out of pocket expenses, including without limitation attorney's fees, paid or incurred by Buyer in connection with (i) negotiation and preparation of this Purchase Agreement or any amendments thereto, (ii) review of the Due Diligence Documents and/or Title Evidence or (iii) exercise of its rights under Section 6 hereof (collectively, "Buyer Expenses"), in any event not to exceed the aggregate sum of $25,000.00. In such event, Buyer shall deliver to Seller an itemized list of all Buyer's Expenses, with reasonable backup information; Seller shall reimburse Buyer the amount due pursuant to the preceding sentence within fifteen (15) days after receipt thereof. Section 10. CLOSING. The closing of the sale of the Property by Seller to Buyer (the "Closing") shall occur on or before the later of (i) a date fifteen (15) days after the satisfaction of the contingencies to Buyer's performance set forth in Section 9 or (ii) a date sixty (60) days from the Effective Date hereof (the "Closing Date"). The parties may elect to close prior to the scheduled Closing Date upon mutual consent. The Closing shall occur through the submission of all executed closing documents and funds necessary to close the transaction contemplated hereby to the Title Company along with written escrow instructions from each party. An escrow officer of the Title Company will coordinate the Closing with the Title Company's branch office or its affiliate in the county in which the Property is located. Time is of the essence with regard to the Closing Date. Section 11. BUYER'S CLOSING DELIVERIES. Buyer, at their expense, shall deliver or cause to be delivered to Seller at Closing the following: (1) the Purchase Price, by wire transfer or other immediately available funds; (2) an Assignment and Assumption of Lease and an Assignment of the Guaranty in the form to be prepared by Seller and to be mutually agreed upon by the parties prior to the expiration of the Due Diligence Period, fully executed and acknowledged by Buyer; (3) evidence satisfactory to Seller and Title Company that the persons executing the Closing documents on behalf of Buyer have full right, power, and authority to do so; and (4) such other documents as may be reasonably requested by the Title Company or Seller in accordance with this Agreement. Section 12. SELLER'S CLOSING DELIVERIES. Seller, at its expense, shall deliver or cause to be delivered to Buyer the following: (1) Termination of the Ground Lease, duly executed by all parties thereto, along with evidence that the landlord's interest thereunder and all rights and interests of the ground lessess under the Ground Lease in and to any portion of the Property shall have been re- assigned to Seller by Franco and the Trustees of the 1995 Trust; (2) An Assignment and Assumption of Lease, assigning to Buyer the landlord's interest in and to the Lease, free and clear of liens, claims or encumbrances, in a form to be mutually agreed upon by the parties prior to the expiration of the Inspection Period, fully executed and acknowledged by Seller, accompanied by the original Lease and original Amendments thereto, if any; (3) A New York statutory form of general warranty deed in the form to be prepared by Seller and to be mutually agreed upon by the parties prior to the expiration of the Due Diligence Period, fully executed and acknowledged by Seller, conveying to Buyer the Land and Improvements (the "Deed"); (4) A warranty Bill of Sale as to the Personal Property; (5) An assignment of Seller's rights in and to all Seller Permits, pursuant to an assignment in form acceptable to Buyer in its reasonable discretion. (6) An assignment of all of Seller's right in and to the Warranties, Plans and Intangible Property, pursuant to an assignment in form acceptable to Buyer in its reasonable discretion; (7) The original Tenant Estoppel; (8) Evidence reasonably satisfactory to Buyer and Title Company that the persons executing and delivering the Closing documents on behalf of Seller and/or the Trustees of the 1995 Trust have full right, power and authority to do so; (9) A certificate meeting the requirements of Section 1445 of the Internal Revenue Code of 1986, executed and sworn to by Seller; (10) A bring down certificate, warranting that all Seller's representations contained herein are true and correct as of the Closing Date; (11) Such other documents as may be reasonably requested by the Title Company or by Buyer in accordance with this Agreement, or as are customarily executed in New York to effectuate the conveyance of property similar to the Property; (12) Keys to the Improvements; and (13) An opinion of Seller's in house legal counsel, in form and substance as acceptable to Buyer in its reasonable discretion that (i) the Lease is valid, binding and enforceable on Tenant and (ii) to the best of such counsel's knowledge, (A) the execution and delivery of the Lease have been authorized by all necessary corporate action on behalf of the Tenant, (B) the Lease does not conflict with Tenant's Articles of Incorporation, Bylaws or other organizational documents, and (C) the person(s) signing the Lease on behalf of Tenant have been duly authorized to do so. Section 13. CLOSING COSTS; PRORATIONS. (a) Seller shall pay at Closing (i) all transfer taxes, deed taxes, intangible taxes or similar taxes payable in connection with transfer of title to real property in the county in which the Property is located; (ii) all filing and recording fees for all documents required to be filed or recorded as a condition to delivery of the Deed to buyer, with title to the Property in the condition required thereunder; (iii) one half of Buyer's title insurance premiums for a standard form ALTA policy of owner's title insurance, with extended coverage, including the premiums or charges for those endorsements identified in Section 7 hereof, but excluding the cost of any lender's title policy (collectively, "Buyer's Title Costs"); and (iv) one half of the Title Company's escrow and closing fee. (b) Buyer shall pay at Closing (i) all filing and recording fees with respect to the Deed, (ii) the balance of Buyer's Title Costs and (iii) one half of the Title Company's escrow and closing fee. (c) All other closing costs shall be allocated between the parties consistent with the custom and practice in similar transactions in the county in which the Property is located. (d) Rent due under the Lease shall be prorated as of the Closing Date, Seller being charged and credited for all of same up to the Closing Date and Buyer being charged and credited for all of same on and after the Closing Date; provided, however, that, if the wire payoff to Seller's mortgagee is received later than 1:00 pm EST on the day of Closing then the Seller, and not Buyer, shall be credited for the Rent paid under the Lease that is attributable to the day of closing. Utility charges and taxes are paid by the Tenant and shall not be prorated at Closing. All prorations made at Closing shall be considered a final settlement between the parties. Section 14. DESTRUCTION, DAMAGE, OR TAKING BEFORE CLOSING. If, before Closing, all or any material part of the Land or Improvements are destroyed or damaged, or become subject to condemnation or eminent domain proceedings, then Seller shall promptly notify Buyer thereof. Buyer may elect to proceed with the Closing (subject to the other provisions of this Agreement and with no reduction in the Purchase Price) by delivering notice thereof to Seller within twenty (20) business days of receipt of Seller's notice respecting the damage, destruction, or taking, but in such event Buyer shall be entitled to all insurance proceeds or condemnation awards payable as a result of such damage or taking and, to the extent the same may be necessary or appropriate, Seller shall assign to Buyer at Closing Seller's rights to such proceeds or awards. If, within twenty (20) business days of receipt of Seller's notice respecting the damage, destruction, or taking, Buyer notifies Seller of its intent to terminate this Agreement, or if Buyer gives no notice within such period, then Buyer shall be deemed to have terminated this Agreement. Section 15. TERMINATION AND REMEDIES (a) If Buyer fails to consummate the purchase of the Property pursuant to this Agreement for any reason other than termination hereof pursuant to a right granted to Buyer in herein, or if Buyer breaches any covenant or provision of this Agreement, then Seller, as its sole remedy, may terminate this Agreement by notifying Buyer thereof, in which event Title Company shall deliver the Earnest Money, together with all interest thereon, to Seller as LIQUIDATED DAMAGES. In addition to the foregoing, Seller shall also be entitled to recover all reasonable expenses, including reasonable attorney's fees and litigation costs, incurred in connection with obtaining the Earnest Money following a breach hereof by Buyer. (b) If Seller defaults in performance of any of its duties or obligations contained herein, may: (1) terminate this Agreement by notifying Seller thereof, in which case the Earnest Money, together with all interest thereon, shall be returned to Buyer and neither party hereto shall have any further rights or obligations hereunder, except for those which expressly survive the termination of this Agreement; or (2) enforce specific performance of the obligations of Seller hereunder, or (3) exercise any other right or remedy available at law or in equity. (c) The provision for payment of liquidated damages in Section 15(a) has been included because, in the event of a breach by Buyer, the actual damages to be incurred by Seller can reasonably be expected to approximate the amount of liquidated damages called for herein and because the actual amount of such damages would be difficult if not impossible to measure accurately. Section 16. NOTICES. All notices provided or permitted to be given under this Agreement must be in writing and may be served by depositing same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested; by delivering the same in person to such party; by reputable overnight courier delivery; or by facsimile copy transmission with printed confirmation of receipt thereof. Notice given in accordance herewith shall be effective upon delivery to the address of the addressee. Any notice given by facsimile transmission shall be followed by a hard copy or by hand delivery. For purposes of notice, the addresses of the parties shall be as follows: If to Seller, to: Ronald Benderson, David H. Baldauf and Richard Franco c/o Benderson Development Company, Inc. 570 Delaware Avenue Buffalo, New York 14202-1207 Facsimile No.: (716) 886-2269 With a copy to: Kevin Kinney, Esq. Benderson Development Company, Inc. 570 Delaware Avenue Buffalo, New York 14202-1207 Facsimile No.: (716) 878-9694 If to Buyer, to: AEI Fund Management, Inc. 30 Seventh Street East, Suite 1300 St. Paul, MN 55101-4901 Attention: Ms. Barbara Kochevar Facsimile No.: (651) 227-7705 With a copy to: Thomas M. Hart Winthrop & Weinstine, P.A. 225 South Sixth Street, Suite 3500 Minneapolis, MN 55402 Facsimile No.: (612) 604-6800 Either party hereto may change its address for notice by giving three (3) days' prior written notice thereof to the other party. Section 17. ASSIGNS/BENEFICIARIES. Either Seller or Buyer may assign its or their rights and obligations under this Agreement to a third party or parties and shall provide written notice thereof to the other not later than five (5) business days prior to the Closing Date. No such assignment shall relieve Seller or Buyer of its or their covenants, duties and obligations hereunder. Section 18. COMMISSIONS. Seller agrees at Closing to pay a commission to Horn Capital Realty, Inc. ("Seller Broker") in an amount equal to two percent (2%) of the Purchase Price at Closing as required under Seller's written agreement with Seller's Broker. Buyer and Seller agree to hold each other harmless and defend one another from claims made by or arising from any other broker claiming by, under or through the indemnifying party. Section 19. COMPUTATION OF TIME. If the expiration date of any period or time for performance hereunder falls on a Saturday, Sunday, or legal holiday, then, in such event, the expiration date of such period or time for performance shall be extended to the next business day. Section 20. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State in which the Property is located. Section 21. ENTIRE AGREEMENT. This Agreement is the entire agreement between Seller and Buyer concerning the sale of the Property, and no modification hereof or subsequent agreement relative to the subject matter hereof shall be binding on either party unless reduced to writing and signed by both parties. All Exhibits attached hereto are incorporated herein by this reference for all purposes. Section 22. RULE OF CONSTRUCTION; NO WAIVER. Buyer and Seller acknowledge that each party has reviewed this Agreement and has had adequate opportunity to consult legal counsel with respect thereto and that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments hereto. No provision of this Agreement shall be deemed to have been waived by either party unless the waiver is in writing and signed by that party. No custom or practice which may evolve between the Buyer and Seller during the term of this Agreement shall be deemed or construed to waive or lessen the right of either of the parties hereto to insist upon strict compliance with the terms of this Agreement. Section 23. NO RECORDING. Neither this Agreement nor any memorandum hereof shall be recorded in any public records where the Property is located or elsewhere. Section 24. EXPIRATION. This offer to Purchase by Buyer shall expire if not executed by Seller and returned to Buyer on or before December 19, 2003. Section 25. ATTORNEY'S FEES. In the event of litigation between the parties in connection with this Agreement, the prevailing party (i.e. the party whose position is substantially upheld) shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing party. The obligation in the immediately preceding sentence shall survive any termination of this Agreement or the closing. Section 26. SELLER'S CONTINUING OBLIGATIONS. Notwithstanding anything contained herein to the contrary, Seller shall remain responsible after Closing for timely performance of any warranties regarding the condition of the Improvements and/or the Personalty granted to Tenant under the Lease. The provisions of this Section 26 shall survive Closing of the transaction contemplated hereby. Section 27. CONSTRUCTION. The parties acknowledge that this Agreement has been fully negotiated at arm's length and in good faith and that, if any ambiguity shall arise hereunder, these shall be no presumption that either party drafted this Agreement or shall have such ambiguity resolved against either party by virtue of its role in drafting or preparing this Agreement. IN WITNESS WHEREOF Seller and Buyer have caused their respective duly authorized representatives to execute this Purchase and Sale Agreement, which shall be effective as of the Effective Date. SELLERS: /s/ Richard Franco RICHARD FRANCO /s/ David H Baldauf DAVID H. BALDAUF, Trustee of the Randall Benderson 1993-1 Trust dated September 22, 1993 Date: December 15, 2003 BUYER: AEI FUND MANAGEMENT, INC. By: /s/ Robert P Johnson Its President Date: December 17, 2003 EXHIBIT A LEGAL DESCRIPTION OF LAND EXHIBIT A Legal description All That Tract or Parcel of Land, situate in the City of Buffalo, County of Erie, and State of New York, being part of Lot No. 44, Township 11, Range 8 of the Holland Land Company's Survey, bounded and described as follows: Beginning at the intersection of the southeasterly line of Main Street and the westerly line of Fillmore Avenue; thence southerly and along the westerly line of Fillmore Avenue a distance of 418.93 feet to a point' thence westerly and along a line drawn at right angles to the westerly line of Fillmore Avenue a measured distance of 147.38 feet (147.69 feet) to a point' thence northerly at an interior angle of 66 18' 29" a measured distance of 22.11 feet to a point on a line drawn at right angles to a southeasterly line of Main Street and measuring 139.22 feet (139.38 feet deed) therefrom; thence westerly at a n interior angle of 255 16' 31" a measured distance 139.22 feet (138.38 feet deed) to a point in the southeasterly line of Main Street; thence northeasterly at an interior angle of 90 00' 00" and along the southeasterly line of Main Street a distance of 398.43 feet to a point and place of beginning. EX-31.1 5 ex311-21.txt Exhibit 31.1 CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this annual report on Form 10-KSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: March 19, 2004 /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 6 ex312-21.txt Exhibit 31.2 CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this annual report on Form 10-KSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: March 19, 2004 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 7 ex32-21.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AEI Income & Growth Fund XXI Limited Partnership (the "Partnership") on Form 10-KSB for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert P. Johnson, President of AEI Fund Management XXI, Inc., the Managing General Partner of the Partnership, and Patrick W. Keene, Chief Financial Officer of AEI Fund Management XXI, Inc., each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner March 19, 2004 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner March 19, 2004 -----END PRIVACY-ENHANCED MESSAGE-----